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Y2K mutual fund IPOs fare badly

Aabhas Pandya

It has been a bad start to the new millennium for mutual fund investors. The current year kicked off with a bang for mutual fund IPOs with investments pouring but is likely to end with a whimper. With all the 26 equity and balanced funds launched in the current calendar quoting below par, there is little hope for all those investors, who had flocked to these funds. With the rudderless markets struggling to find a direction, even the anecdotally good months of November and December seem to be a mirage this year. Unlike last year, when the markets had rallied over 350 points or 8.2 per cent in November, the current month continues to be slack despite a net FII investment of Rs 8.27 billion.

According to a rough estimate, the 25 IPOs had mobilised over Rs 3,0 billion but given their current level of net asset values, the cumulative investment stands eroded by over 30 per cent at Rs 20.86 billion. In the equity and balanced category, the current year saw the launch of seven technology funds, five speciality funds, six diversified equity funds and six balanced funds. Despite over 40 per cent holding in cash, even the recently launched funds from HDFC AMC are marginally below par, suggesting that markets continue to drift southwards.

Among the worst hit, Prudential ICICI Technology Fund has seen its net asset value plummet by nearly 50 per cent to Rs 5.34 after it had gone open-end with a marginal appreciation at Rs 10.88 in March this year. On the other hand, the specialty fund from Sun F&C, Sun F&C Resurgent India Equity Fund is within striking distance of touching the par level. The fund, which focuses on turnaround, restructuring and acquisition-led growth opportunities, had a net asset value of Rs 9.94 on November 22.

Of course, even as Prudential Technology may have been the worst hit, other technology funds are also at the bottom of the heap. While the average drop in NAVs of all the funds is 19.6 per cent (as on November 21), the technology funds have lost an average 36.2 per cent.

So, what's in store for investors in these funds, most of which do have a quality portfolio? First and foremost, one year (even less in case of most funds) is too short a period for your equity investments to reap rich rewards. If you had entered the fancied lot of technology or MNC funds to rake in millions in a matter of months, the result could not have been more disastrous. Exiting now will only convert notional into actual loss and hence, you need to stay invested. While patience is a virtue few of us have, it is a must for all when it boils down to investments in equity funds.

Source: Value Research

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